M&A activity in the UK market should provide windfall benefits for single company and general Pep ho...
M&A activity in the UK market should provide windfall benefits for single company and general Pep holders but not if the windfalls come in the form of bonds, writes Jane Wallace
Depending on the terms of the takeover deal, Pepholders' original shareholdings may turn into a combination of loan stock, new shares or other instruments
Peter Shipp, chief executive of the Pep and Isa Managers Association (PIMA), said: "In the Bank of Scotland/NatWest deal, Bank of Scotland shareholders won't be affected but NatWest shareholders will. The deal hasn't been set out yet but we are expecting the offer will take the form of loan stock with newly issued Bank of Scotland shares
This means if the shares in a Pep were transformed into new shares plus loan stock as a result of a takeover deal, the latter would not be allowed in the single company Pep. The holder may be allowed to sell the loan stock and then put the proceeds under the single company Pep umbrella so long as no other option is available
If Pepholders receive a non-qualifying investment then they can sell it and put the proceeds back into the Pep as long as there was not a choice of assets and the Pepholder chose a non-qualifying asset over a qualifying one. If the Pepholder deliberately chose a non-qualifying asset it must be held outside the Pep thus eroding the Pep's value
For those with self-select Peps, which are a general Pep, bonds can be included directly into the Pep but not all types of loan stock will be eligible
Shipp said: "You can hold loan stock within a Pep but it must meet certain requirements
"It can be issued only by certain companies and you cannot have loan stock issued by a bank in a Pep
Pep qualifying loan stock is that issued by a UK incorporated company other than a bank and which have more than five years to maturity
Either the issuing company or the loan stock itself must be listed in the EU
Isa holders fare slightly better since they can hold loan stocks from a bank and securities from a company listed on any recognised stock exchange but must still run for more than five years to maturity
The conscious choice rule that applies to Peps is not applicable. Isa holders can sell the asset within 30 days and reinvest the proceeds in the Isa in qualifying investments
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